##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the quarterly period ended March 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the transition period from  to
 Commission File Number 1-31951
 eFunds Corporation
  Delaware
(State or other jurisdiction of incorporation or organization)
    
    39-1506286
(IRS Employer Identification Number)4900 N. Scottsdale Road, Suite 1000
Scottsdale, Arizona
(Address of principal executive offices)
    
    85251
(Zip Code)
   þ o
  þ o o
  o þ




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 4. CONTROLS AND PROCEDURESPART II. OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGSITEM 5. OTHER INFORMATION CAUTIONARY STATEMENTSSIGNATURESIndex to ExhibitsExhibit 10.13Exhibit 10.14Exhibit 31.1Exhibit 31.2Exhibit 32.1    Table of Contents  
 PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 EFUNDS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,2007
    
    
    2006(dollars in thousands)
    
    (Unaudited)Current assets:Cash and cash equivalents
    
    $
    120,898
    
    
    $
    126,740Short term investments
    
    
    20,440
    
    
    
    7,000Restricted cash
    
    
    4,216
    
    
    
    3,730Settlement assets
    
    
    21,695
    
    
    
    58,328Accounts receivable  net
    
    
    102,447
    
    
    
    107,188Deferred income taxes
    
    
    11,991
    
    
    
    12,781Prepaid expenses and other current assets
    
    
    25,023
    
    
    
    26,115Total current assets
    
    
    306,710
    
    
    
    341,882Property and equipment  net
    
    
    66,448
    
    
    
    60,145Long-term deferred income taxes
    
    
    
    
    
    
    877Intangible assets  net
    
    
    393,903
    
    
    
    395,785Other non-current assets
    
    
    28,526
    
    
    
    25,849Total non-current assets
    
    
    488,877
    
    
    
    482,656Total assets
    
    $
    795,587
    
    
    $
    824,538Current liabilities:Accounts payable
    
    $
    16,518
    
    
    $
    24,021Settlement liabilities
    
    
    19,248
    
    
    
    54,792Accrued liabilities
    
    
    45,566
    
    
    
    56,630Deferred revenue and gains
    
    
    27,109
    
    
    
    22,052Long-term debt due within one year
    
    
    4,071
    
    
    
    4,438Total current liabilities
    
    
    112,512
    
    
    
    161,933Long-term deferred gains
    
    
    15,689
    
    
    
    18,078Long-term debt
    
    
    102,113
    
    
    
    102,656Other long-term liabilities
    
    
    13,843
    
    
    
    7,345Total liabilities
    
    
    244,157
    
    
    
    290,012Commitments and contingencies (Notes 6 & 10)Stockholders equity:Preferred stock $.01 par value; 100,000,000 shares authorized; no shares
issued and outstanding
    
    
    
    
    
    
    Common stock $.01 par value (250,000,000 shares authorized; 51,916,796
shares issued and 47,325,553 shares outstanding March 31, 2007 and
51,684,486 shares issued and 47,093,243 shares outstanding at December
31, 2006)
    
    
    519
    
    
    
    517Additional paid-in capital
    
    
    530,229
    
    
    
    524,980Treasury stock at cost (4,591,243 shares)
    
    
    (100,000
    )
    
    
    (100,000
    )Retained earnings
    
    
    116,199
    
    
    
    105,690Accumulated other comprehensive income
    
    
    4,483
    
    
    
    3,339Stockholders equity
    
    
    551,430
    
    
    
    534,526Total liabilities and stockholders equity
    
    $
    795,587
    
    
    $
    824,538
  1




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EFUNDS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 Three Months EndedMarch 31,(in thousands, except per share amounts)
    
    2007
    
    
    2006Net revenue
    
    $
    134,042
    
    
    $
    139,738Operating expenses:Processing, communication and service costs
    
    
    34,579
    
    
    
    35,293Employee costs
    
    
    57,607
    
    
    
    59,078Depreciation and amortization
    
    
    12,025
    
    
    
    11,778Other operating costs
    
    
    13,200
    
    
    
    18,420Total operating expenses
    
    
    117,411
    
    
    
    124,569Income from operations
    
    
    16,631
    
    
    
    15,169Interest expense
    
    
    (1,431
    )
    
    
    (1,576
    )Other income  net
    
    
    967
    
    
    
    807Income before income taxes
    
    
    16,167
    
    
    
    14,400Provision for income taxes
    
    
    (5,659
    )
    
    
    (3,740
    )Net income
    
    $
    10,508
    
    
    $
    10,660Weighted average shares outstanding
    
    
    47,205
    
    
    
    46,145Weighted average shares and potential dilutive shares outstanding
    
    
    48,084
    
    
    
    47,026Net income per share  basic
    
    $
    0.22
    
    
    $
    0.23Net income per share  diluted
    
    $
    0.22
    
    
    $
    0.23
  2




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EFUNDS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three Months EndedMarch 31,(in thousands)
    
    2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    10,508
    
    
    $
    10,660Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    4,139
    
    
    
    4,380Amortization
    
    
    7,886
    
    
    
    7,398Loss on impairment or disposal of assets
    
    
    87
    
    
    
    Stock-based compensation
    
    
    2,040
    
    
    
    2,594Excess tax benefits from share-based compensation
    
    
    (165
    )
    
    
    (912
    )Acquisition and other adjustments
    
    
    (2,022
    )
    
    
    Deferred income taxes
    
    
    4,866
    
    
    
    10,828Other  net
    
    
    
    
    
    
    28Changes in assets and liabilities, net of effects from acquisitions and dispositions:Restricted cash
    
    
    (486
    )
    
    
    (240
    )Accounts receivable
    
    
    4,741
    
    
    
    6,082Accounts payable
    
    
    (7,502
    )
    
    
    (2,885
    )Deferred revenue and gains
    
    
    2,667
    
    
    
    138Income taxes receivable/payable
    
    
    (4,428
    )
    
    
    (17,096
    )Other assets and liabilities
    
    
    (6,162
    )
    
    
    (17,156
    )Net cash provided by operating activities
    
    
    16,169
    
    
    
    3,819Cash flows from investing activities:Capital expenditures
    
    
    (10,681
    )
    
    
    (8,481
    )Proceeds from dispositions
    
    
    
    
    
    
    2,000Purchase of short-term investments
    
    
    (24,715
    )
    
    
    Proceeds from sale of short-term investments
    
    
    11,275
    
    
    
    Other  net
    
    
    (27
    )
    
    
    (815
    )Net cash used in investing activities
    
    
    (24,148
    )
    
    
    (7,296
    )Cash flows from financing activities:Issuance of common stock
    
    
    2,892
    
    
    
    6,637Excess tax benefits from share-based compensation
    
    
    165
    
    
    
    912Payments on long-term debt
    
    
    (920
    )
    
    
    (1,010
    )Other
    
    
    
    
    
    
    23Net cash provided by financing activities
    
    
    2,137
    
    
    
    6,562Net (decrease) increase in cash and cash equivalents
    
    
    (5,842
    )
    
    
    3,085Cash and cash equivalents at beginning of period
    
    
    126,740
    
    
    
    85,987Cash and cash equivalents at end of period
    
    $
    120,898
    
    
    $
    89,072Supplemental disclosures:Cash paid for income taxes
    
    $
    4,974
    
    
    $
    9,947Cash paid for interest
    
    $
    3,051
    
    
    $
    2,828Noncash investing and financing activities:Purchase of assets under capital lease obligations
    
    $
    
    
    
    $
    20
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EFUNDS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
    -
    
    US Payments-
    
    US Risk Management-
    
    International
    Recent accounting pronouncements
 How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in
the Income Statement (That is, Gross versus Net Presentation).
 Accounting for Uncertainty in
Income Taxesan interpretation of FASB Statement No. 109
 4




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Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements
 Fair Value Measurements
 Stock incentive plans
     5




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Deluxe Option Conversion Plan
  Employee Stock Purchase Plan
  Adoption of SFAS No. 123R
 Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees.
  Three Months EndedMarch 31,2007
    
    
    2006Expected volatility
    
    
    32.5
    %
    
    
    35.0
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Risk-free interest rate
    
    
    4.6
    %
    
    
    4.5
    %Expected life
    
    5 years
    
    5 yearsWeighted average fair value at grant date
    
    $
    9.22
    
    
    $
    9.26
 6




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Wtd. Avg.ExerciseShares
    
    
    PriceOptions outstanding at January 1, 2007
    
    
    3,308,808
    
    
    $
    18.17Options granted
    
    
    2,313,871
    
    
    
    24.76Options exercised
    
    
    (144,201
    )
    
    
    16.35Options forfeited and cancelled
    
    
    (150,860
    )
    
    
    20.96Options outstanding at March 31, 2007
    
    
    5,327,618
    
    
    $
    21.01Options exercisable
    
    
    2,029,864
    
    
    $
    15.85
  Ranges of
    
    Options
    
    Wtd. Avg.
    
    Wtd. Avg.
    
    Options
    
    Wtd. Avg.Exercise Prices
    
    Outstanding
    
    Remaining Life
    
    Exercise Price
    
    Exercisable
    
    Exercise Price$6.19-$12.87
    
    
    566,210
    
    
    
    5.5
    
    
    $
    8.90
    
    
    
    566,210
    
    
    $
    8.90$12.88-$15.99
    
    
    317,109
    
    
    
    3.7
    
    
    
    13.56
    
    
    
    315,451
    
    
    
    13.55$16.00-$17.75
    
    
    492,988
    
    
    
    6.3
    
    
    
    16.45
    
    
    
    479,936
    
    
    
    16.45$17.76-$22.95
    
    
    869,974
    
    
    
    7.9
    
    
    
    20.98
    
    
    
    435,020
    
    
    
    21.23$22.96-$27.00
    
    
    3,081,337
    
    
    
    9.7
    
    
    
    24.74
    
    
    
    233,247
    
    
    
    24.605,327,618
    
    
    
    
    
    
    
    
    
    
    
    2,029,864
 Revenue recognition
  Software Revenue
Recognition Revenue Arrangements with Multiple Deliverables
 7




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US
    
    
    US Risk(in thousands)
    
    Payments
    
    
    Management
    
    
    International
    
    
    Other
    
    
    TotalBalance at December 31, 2006
    
    $
    178,541
    
    
    $
    46,553
    
    
    $
    36,001
    
    
    $
    10,640
    
    
    $
    271,735Goodwill acquired and/or adjusted
    
    
    477
    
    
    
    
    
    
    
    255
    
    
    
    
    
    
    
    732Balance at March 31, 2007
    
    $
    179,018
    
    
    $
    46,553
    
    
    $
    36,256
    
    
    $
    10,640
    
    
    $
    272,467
  8




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March 31, 2007
    
    
    December 31, 2006Wtd. Avg.
    
    
    Gross
    
    
    
    
    
    
    
    
    
    
    Gross(dollars in thousands)
    
    Amort. Period
    
    
    Carrying
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    AccumulatedIn Years
    
    
    Amounts
    
    
    Amortization
    
    
    Net
    
    
    Amounts
    
    
    Amortization
    
    
    NetSoftware-internal use
    
    
    4
    
    
    $
    142,982
    
    
    $
    (107,265
    )
    
    $
    35,717
    
    
    $
    140,336
    
    
    $
    (103,136
    )
    
    $
    37,200Software-licensing
and resale
    
    
    5
    
    
    
    74,467
    
    
    
    (51,438
    )
    
    
    23,029
    
    
    
    71,849
    
    
    
    (50,113
    )
    
    
    21,736Acquired contracts
and other
    
    
    8
    
    
    
    102,762
    
    
    
    (40,072
    )
    
    
    62,690
    
    
    
    102,674
    
    
    
    (37,560
    )
    
    
    65,114$
    320,211
    
    
    $
    (198,775
    )
    
    $
    121,436
    
    
    $
    314,859
    
    
    $
    (190,809
    )
    
    $
    124,050
   Restructuring charges
  Lease-RelatedSeverance
    
    
    Costs &(in thousands)
    
    Related
    
    
    Other
    
    
    TotalBalance at December 31, 2006
    
    $
    73
    
    
    $
    557
    
    
    $
    630Reversal of provisions
    
    
    (50
    )
    
    
    
    
    
    
    (50
    )Cash payments
    
    
    (23
    )
    
    
    (65
    )
    
    
    (88
    )Balance at March 31, 2007
    
    $
    
    
    
    $
    492
    
    
    $
    492
  Acquisition exit activities
  LeaseSeverance
    
    
    Related Costs(in thousands)
    
    Related
    
    
    & Other
    
    
    TotalBalance at December 31, 2006
    
    $
    1,133
    
    
    $
    4,899
    
    
    $
    6,032Cash payments
    
    
    (390
    )
    
    
    (343
    )
    
    
    (733
    )Reversal of provisions
    
    
    (370
    )
    
    
    (293
    )
    
    
    (663
    )Balance at March 31, 2007
    
    $
    373
    
    
    $
    4,263
    
    
    $
    4,636
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March 31,
    
    
    December 31,(in thousands)
    
    2007
    
    
    20065.39% Senior Notes due 2012
    
    $
    100,000
    
    
    $
    100,000Capital leases and other
    
    
    6,184
    
    
    
    7,094Less capital lease and other amounts due within one year
    
    
    (4,071
    )
    
    
    (4,438
    )Total
    
    $
    102,113
    
    
    $
    102,656
     10




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Three Months EndedMarch 31,(in thousands, except per share amounts)
    
    2007
    
    
    2006Net income per share  basicNet income
    
    $
    10,508
    
    
    $
    10,660Weighted average shares outstanding
    
    
    47,205
    
    
    
    46,145Net income per share  basic
    
    $
    0.22
    
    
    $
    0.23Net income per share  dilutedNet income
    
    $
    10,508
    
    
    $
    10,660Weighted average shares outstanding
    
    
    47,205
    
    
    
    46,145Dilutive impact of options
    
    
    879
    
    
    
    881Weighted average shares and potential dilutive shares outstanding
    
    
    48,084
    
    
    
    47,026Net income per share  diluted
    
    $
    0.22
    
    
    $
    0.23
       -
    
    Processing electronic payment transactions including electronic funds transfers (EFT),
automated clearinghouse (ACH) and other payment processing services;-
    
    processing and other activities associated with prepaid cards (such as payroll cards and
gift cards) following the acquisition of the Companys prepaid solutions business in July
2005;-
    
    providing electronic benefit transfer (EBT) services to government agencies; and-
    
    licensing, maintaining and supporting our EFT software and providing ATM management
services and other business process outsourcing (BPO) services related to payment
transactions.
    11




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Three Months EndedMarch 31,(in thousands)
    
    2007
    
    
    2006(Revised)1Net revenue:US Payments
    
    $
    67,660
    
    
    $
    74,639US Risk Management
    
    
    47,132
    
    
    
    49,886International
    
    
    19,250
    
    
    
    15,213Total net revenue
    
    
    134,042
    
    
    
    139,738Operating expenses before overhead:US Payments
    
    
    54,702
    
    
    
    65,251US Risk Management
    
    
    26,378
    
    
    
    29,520International
    
    
    21,134
    
    
    
    15,322Total operating expenses before overhead
    
    
    102,214
    
    
    
    110,093Allocated overhead:US Payments
    
    
    4,008
    
    
    
    3,927US Risk Management
    
    
    3,856
    
    
    
    3,316International
    
    
    2,162
    
    
    
    1,926Corporate
    
    
    5,171
    
    
    
    5,307Total allocated overhead
    
    
    15,197
    
    
    
    14,476Income (loss) from operations:US Payments
    
    
    8,950
    
    
    
    5,461US Risk Management
    
    
    16,898
    
    
    
    17,050International
    
    
    (4,046
    )
    
    
    (2,035
    )Corporate
    
    
    (5,171
    )
    
    
    (5,307
    )Income from operations
    
    $
    16,631
    
    
    $
    15,169
 
 1
    
    Amounts for the three month period ended March 31, 2006 have
been revised to conform to the Companys current segment presentation.
The company began using this presentation during the quarter ended
June 30, 2006.
   Three Months EndedMarch 31,(in thousands)
    
    2007
    
    
    2006(Revised)Depreciation and amortization:US Payments
    
    $
    6,443
    
    
    $
    6,648US Risk Management
    
    
    2,843
    
    
    
    2,738International
    
    
    2,427
    
    
    
    2,065Corporate
    
    
    312
    
    
    
    327Total depreciation and amortization
    
    $
    12,025
    
    
    $
    11,778
 12




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Three Months EndedMarch 31,(in thousands)
    
    2007
    
    
    2006United States
    
    $
    114,979
    
    
    $
    123,554EMEA
    
    
    11,249
    
    
    
    9,804India
    
    
    4,829
    
    
    
    2,649Canada
    
    
    1,359
    
    
    
    2,802Latin America
    
    
    1,083
    
    
    
    793Asia
    
    
    543
    
    
    
    136Total consolidated
    
    $
    134,042
    
    
    $
    139,738
  March 31,
    
    
    December 31,(in thousands)
    
    2007
    
    
    2006United States
    
    $
    51,006
    
    
    $
    44,278India
    
    
    14,538
    
    
    
    14,869Canada
    
    
    425
    
    
    
    458United Kingdom and other
    
    
    479
    
    
    
    540Total consolidated
    
    $
    66,448
    
    
    $
    60,145
     13




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Contractual
cash obligations
  Payments Due by December 31,(in thousands)
    
    Total
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    ThereafterLong-term debt
    
    $
    100,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    100,000Capital lease obligations
    
    
    6,183
    
    
    
    3,512
    
    
    
    2,509
    
    
    
    162
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations1
    
    
    67,161
    
    
    
    12,775
    
    
    
    13,159
    
    
    
    7,541
    
    
    
    5,886
    
    
    
    5,477
    
    
    
    22,323Vendor obligations
    
    
    40,654
    
    
    
    23,252
    
    
    
    13,951
    
    
    
    2,355
    
    
    
    598
    
    
    
    498
    
    
    
    Other
    
    
    8,000
    
    
    
    8,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    221,998
    
    
    $
    47,539
    
    
    $
    29,619
    
    
    $
    10,058
    
    
    $
    6,484
    
    
    $
    5,975
    
    
    $
    122,323
 
 1
    
    Future minimum lease payments for non-cancelable operating
leases are presented net of minimum sublease rentals of $4.2 million
due in the future under non-cancelable subleases.
  Future commercial commitments
  Commitment Expiration by Period1(in thousands)
    
    Total
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    ThereafterLetters of credit and other
    
    $
    51,683
    
    
    $
    997
    
    
    $
    23
    
    
    $
    49,331
    
    
    $
    1,332
    
    
    $
    
    
    
    $
    Performance bonds
    
    
    11,752
    
    
    
    1,407
    
    
    
    10,215
    
    
    
    95
    
    
    
    35
    
    
    
    
    
    
    
    Total commitments
    
    $
    63,435
    
    
    $
    2,404
    
    
    $
    10,238
    
    
    $
    49,426
    
    
    $
    1,367
    
    
    $
    
    
    
    $
    
 
 1
    
    Represents commercial commitment expirations during the last nine
months of 2007 and the respective
years ending December 31, 2008 through 2011, and thereafter.
  14




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##### Table of Contents



India Tax Dispute
 Acquisition holdbacks and earn-outs
  Other commitments
    India Tax Dispute
    15




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##### Table of Contents



Other contingencies
  ITEM 1A. RISK FACTORS
      16




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    Our Business
   17




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##### Table of Contents



-
    
    US Payments-
    
    US Risk Management-
    
    International
   US Payments
   US Risk Management
  ®
 18




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##### Table of Contents



International
  Key Events During the Three Months Ended March 31, 2007
 
    
    We entered into a New Retention Agreement with Paul F. Walsh, our Chairman and Chief
Executive Officer, extending the term of his employment until May 2011;
    
    We extended our processing contract with CO-OP Financial Services, Inc., the leading EFT
network and processor for credit unions in the U.S.; and
    
    We adopted a new corporate brand: EFD;
 Trends
  
    
    prepaid solution products are experiencing the highest growth rate of any payment card
product and this trend is expected to continue over the next several years, although we
expect to see some moderation in growth levels seen in this industry in future periods;
    
    increased fraud and regulatory requirements are driving sustained growth in the need for
risk management products in the US and abroad;
    
    there continues to be a migration from the use of traditional paper checks and cash to
electronic payments;
    
    larger financial institutions are developing increasing expectations regarding the
ability of their payment technology providers to deliver complex, comprehensive solutions
addressing all forms of electronic payment types across multiple geographies; and
    
    there has been an increase in regulatory and legislative activity regarding notice
requirements associated with incidents involving the misappropriation of consumer data,
causing participants in the financial service and other industries to devote additional
efforts to maintaining the security of their data files.
 Risks and Challenges
  
    
    Changes in India tax laws or in the interpretation or enforcement of those laws could
adversely affect our results of operations.
    
    If the security of our databases is compromised, our reputation could suffer and
customers may not be willing to use our products and services.
    
    Estimates of future financial results are inherently unreliable.
    
    Our ability to expand through acquisitions involves risks and may not be successful.
    
    Consolidation in the industries we serve may adversely affect our ability to sell our products and services.
    
    We are unable to predict the results of the purported class action lawsuits filed in Florida and Texas.
    
    We may be unable to protect our intellectual property rights or others may claim that we
are infringing on their intellectual property.
    
    We face intense competition in all areas of our business, and if we do not compete
effectively, our business will be harmed.
    
    If we experience system failures, the products and services we provide to our customers
could be delayed or interrupted, which could harm our business and reputation and result in
the loss of customers.
    
    Legislation or regulation could impair our ability to collect and use data, increase our
operating costs or otherwise harm our business.
 19




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##### Table of Contents




    
    We may experience software defects, development delays and installation difficulties,
which could harm our business and reputation and expose us to potential liability.
    
    There are a number of risks associated with our international sales and operations that
could harm our business.
    
    We face termination and compliance risks with respect to our government contracts.
    
    Provisions in our charter documents and Delaware law may delay or prevent a change in
control of our Company that you may consider favorable.
   Three Months Ended March 31,(dollars in millions)
    
    2007
    
    
    2006
    
    
    % ChangeNet revenue
    
    $
    134.0
    
    
    $
    139.7
    
    
    
    (4
    )%Operating expenses:Processing, communication and
service costs
    
    
    34.6
    
    
    
    35.3
    
    
    
    (2
    )Employee costs
    
    
    57.6
    
    
    
    59.1
    
    
    
    (3
    )Depreciation and amortization
    
    
    12.0
    
    
    
    11.8
    
    
    
    2Other operating costs
    
    
    13.2
    
    
    
    18.4
    
    
    
    (28
    )Total operating expenses1
    
    
    117.4
    
    
    
    124.6
    
    
    
    (6
    )Income from operations1
    
    
    16.6
    
    
    
    15.2
    
    
    
    9Interest expense
    
    
    (1.4
    )
    
    
    (1.6
    )
    
    
    (12
    )Other income  net
    
    
    1.0
    
    
    
    0.8
    
    
    
    25Income before income taxes1
    
    
    16.2
    
    
    
    14.4
    
    
    
    13Provision for income taxes
    
    
    (5.7
    )
    
    
    (3.7
    )
    
    
    54Net income1
    
    $
    10.5
    
    
    $
    10.7
    
    
    
    (2
    )
 
 1
    
    Amounts may not sum due to rounding.
 Net Revenue
  Three Months Ended March 31,(dollars in millions)
    
    2007
    
    
    2006
    
    
    % Change(Revised)US PaymentsEFT processing
    
    $
    36.9
    
    
    $
    34.9
    
    
    
    6
    %Prepaid Solutions
    
    
    18.2
    
    
    
    21.8
    
    
    
    (17
    )Government services (EBT)
    
    
    9.6
    
    
    
    10.1
    
    
    
    (5
    )Software sales and other services
    
    
    2.5
    
    
    
    7.0
    
    
    
    (64
    )ATM Managed Services
    
    
    0.4
    
    
    
    0.8
    
    
    
    (50
    )67.6
    
    
    
    74.6
    
    
    
    (9
    )US Risk ManagementFinancial institution products
    
    
    37.8
    
    
    
    38.0
    
    
    
    (1
    )Retail products
    
    
    4.1
    
    
    
    4.6
    
    
    
    (11
    )BPO
    
    
    5.2
    
    
    
    7.3
    
    
    
    (29
    )47.1
    
    
    
    49.9
    
    
    
    (6
    )InternationalSoftware sales
    
    
    7.9
    
    
    
    6.1
    
    
    
    30BPO
    
    
    7.1
    
    
    
    7.8
    
    
    
    (9
    )Prepaid solutions
    
    
    2.4
    
    
    
    
    
    
    
    *EFT processing and ATM management
    
    
    1.9
    
    
    
    1.3
    
    
    
    4619.3
    
    
    
    15.2
    
    
    
    27Total net revenue1
    
    $
    134.0
    
    
    $
    139.7
    
    
    
    (4
    )
 
 *
    
    Represents an increase or decrease in excess of 100%.1
    
    Amounts may not sum due to rounding.
 20




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##### Table of Contents



US Payments
   US Risk Management
   International
  Business Segment Operating Income
  Three Months Ended March 31,(dollars in millions)1
    
    2007
    
    
    2006
    
    
    % ChangeOperating income (loss)US Payments
    
    $
    8.9
    
    
    $
    5.4
    
    
    
    65
    %US Risk Management
    
    
    16.9
    
    
    
    17.1
    
    
    
    (1
    )International
    
    
    (4.0
    )
    
    
    (2.0
    )
    
    
    100Corporate
    
    
    (5.2
    )
    
    
    (5.3
    )
    
    
    2Total operating income1
    
    $
    16.6
    
    
    $
    15.2
    
    
    
    9
 
 1
    
    Amounts may not sum due to rounding.
 US Payments
  21




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##### Table of Contents



US Risk Management
  International
  Corporate
  Operating Expenses
  Three Months Ended March 31,(dollars in millions)
    
    2007
    
    
    2006
    
    
    % ChangeOperating expenses:Processing, communication and
service costs
    
    $
    34.6
    
    
    $
    35.3
    
    
    
    (2
    )%Employee costs
    
    
    57.6
    
    
    
    59.1
    
    
    
    (3
    )Depreciation and amortization
    
    
    12.0
    
    
    
    11.8
    
    
    
    2Other operating costs
    
    
    13.2
    
    
    
    18.4
    
    
    
    (28
    )Total operating expenses1
    
    $
    117.4
    
    
    $
    124.6
    
    
    
    (6
    )
 
 1
    
    Amounts may not sum due to rounding.
 Processing, communication and service costs
  Employee costs
   22




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##### Table of Contents



Depreciation and amortization
  Other operating costs
  Interest Expense
  Other Income  net
  Provision for Income Taxes
    Overview
  March 31,
    
    
    December 31,(dollars in millions)
    
    2007
    
    
    2006
    
    
    % ChangeCash and cash equivalents
    
    $
    120.9
    
    
    $
    126.7
    
    
    
    (4
    )%Short-term investments
    
    
    20.4
    
    
    
    7.0
    
    
    
    *Long-term debt due within one year
    
    
    4.1
    
    
    
    4.4
    
    
    
    (7
    )Long-term debt
    
    
    102.1
    
    
    
    102.7
    
    
    
    (1
    )Stockholders equity
    
    
    551.4
    
    
    
    534.5
    
    
    
    3Net working capital
    
    
    194.2
    
    
    
    179.9
    
    
    
    8
 
  Financial Condition
  23




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##### Table of Contents



Sources
and Uses of Cash
  Summary of Cash FlowsFor the Three MonthsEnded March 31,(in millions)
    
    2007
    
    
    2006Cash provided by operating activities
    
    $
    16.2
    
    
    $
    3.8Cash used in investing activities
    
    
    (24.1
    )
    
    
    (7.3)Cash provided by financing activities
    
    
    2.1
    
    
    
    6.6Net (decrease) increase in cash and cash equivalents1
    
    $
    (5.8
    )
    
    $
    3.1
 
 1
    
    Amounts may not sum due to rounding.
  
    
    investment in projects, including our Oracle STS initiative, intended to increase our
product delivery and operational effectiveness, enhance our product suite and the security
and redundancy of our systems; and
    
    funding our liquidity needs and the implementation of significant customer contracts.
  Operating Activities
   Investing Activities
  Financing Activities
  24




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##### Table of Contents



Long-term Debt
    Contractual Obligations and Commitments
  Payments Due by Period2Nine months
    
    
    Three Years
    
    
    Three YearsEnded
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    December 31,(in millions)
    
    Total
    
    
    2007
    
    
    2010
    
    
    2013
    
    
    ThereafterLong-term debt
    
    $
    100.0
    
    
    $
    
    
    
    $
    
    
    
    $
    100.0
    
    
    $
    Capital lease obligations
    
    
    6.2
    
    
    
    3.5
    
    
    
    2.7
    
    
    
    
    
    
    
    Operating lease
obligations1
    
    
    67.2
    
    
    
    12.8
    
    
    
    26.6
    
    
    
    15.5
    
    
    
    12.3Vendor obligations
    
    
    40.6
    
    
    
    23.2
    
    
    
    16.9
    
    
    
    0.5
    
    
    
    Other
    
    
    8.0
    
    
    
    8.0
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    222.0
    
    
    $
    47.5
    
    
    $
    46.2
    
    
    $
    116.0
    
    
    $
    12.3
 
 1
    
    Future minimum lease payments for non-cancelable operating
leases are presented net of minimum sublease rentals of $4.2 million
due in the future under non-cancelable subleases.2
    
    Amounts may not sum due to rounding.
  25




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##### Table of Contents



Commitment Expiration by Period1(in millions)
    
    Total
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    ThereafterLetters of credit and other
    
    $
    51.7
    
    
    $
    1.0
    
    
    $
    .1
    
    
    $
    49.3
    
    
    $
    1.3
    
    
    $
    
    
    
    $
    Performance bonds
    
    
    11.8
    
    
    
    1.4
    
    
    
    10.2
    
    
    
    0.1
    
    
    
    .1
    
    
    
    
    
    
    
    Total commitments
    
    $
    63.5
    
    
    $
    2.4
    
    
    $
    10.3
    
    
    $
    49.4
    
    
    $
    1.4
    
    
    $
    
    
    
    $
    
 
 1
    
    Represents commercial commitment expirations during the remaining nine months of
2007 and the respective years ending
December 31, 2008  2011, and thereafter.
    FORWARD-LOOKING STATEMENTS 
   
    
    An effective tax rate of approximately 35 percent for 2007;
    
    Cash outlays for capital expenditures and product development activities will be
somewhat higher than the amounts disbursed in 2006.
 26




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
 ITEM 4. CONTROLS AND PROCEDURES
  
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 5. OTHER INFORMATION CAUTIONARY STATEMENTS
  27




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##### Table of Contents



ITEM 6. EXHIBITS
  ExhibitNo.
    
    1Description
    
    Method of filing3.1
    
    Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-1 (the S-1) filed by the
Company with the Commission on April 4, 2000, Registration
No. 333-33992)
    
    *3.2
    
    Bylaws (incorporated by reference to Exhibit 3.2 to the S-1)
    
    *4.1
    
    Form of common stock certificate (incorporated by reference
to Exhibit 4.1 to Amendment No. 1 to the S-1 filed by the
Company with the Commission on May 15, 2000 (Amendment No.
1), Registration No. 333-33992)
    
    *4.2
    
    Form of Rights Agreement by and between the Company and
Rights Agent, (incorporated by reference to Exhibit 4.2 to
Amendment No. 1)
    
    *4.3
    
    Certificate of Designation of Series A Participating
Preferred Stock (incorporated by reference to Exhibit 4.3
to the Companys Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000)
    
    *10.1
    
    Form of 2007 Key Employee Restricted Stock Unit Award
Agreement (incorporated by reference to the Current Report
on Form 8-K the Company filed with the Securities and
Exchange Commission on February 16, 2007 (the February
2007 8-K))
    
    *10.2
    
    Form of 2007 Independent Director Restricted Stock Unit
Award Agreement (incorporated by reference to Exhibit 10.2
to the February 2007 8-K)
    
    *10.3
    
    Form of 2007 Key Employee Option Award Agreement
(incorporated by reference to Exhibit 10.3 to the February
2007 8-K)
    
    *10.4
    
    Form of 2007 Independent Director Option Award Agreement
(incorporated by reference to Exhibit 10.4 to the February
2007 8-k)
    
    *10.5
    
    Form of Gary L. Palmer Performance-Based Restricted Stock
Unit Award Agreement (incorporated by reference to Exhibit
10.5 to the February 2007 8-K)
    
    *10.6
    
    Form of 2007 Retention Restricted Stock Unit Award
Agreement (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K the Company filed with the
Commission on February 28, 2007 (the February 28 8-K))
    
    *10.7
    
    Form of 2007 Retention Option Award (incorporated by
reference to Exhibit 10.2 to the February 28 8-K)
    
    *10.8
    
    Retention Agreement, dated as of February 26, 2007, by and
between Paul F. Walsh and the Company (incorporated by
reference to Exhbit 10.3 to the February 28 8-K)
    
    *10.9
    
    Amendment, dated February 26, 2007, to Paul F. Walsh 2004
Restricted Stock Unit Award Agreement (incorporated by
reference to Exhibit 10.4 to the February 28 8-K)
    
    *
 28




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##### Table of Contents



ExhibitNo.
    
    1Description
    
    Method of filing10.10
    
    Amendment, dated February 26, 2007 to Paul F. Walsh 2005
Restricted Stock Unit Award Agreement (incorporated by
reference to Exhibit 10.5 to the February 28 8-K)
    
    *10.11
    
    Amendment No. 2, dated as of February 26, 2007, to the
Change in Control Agreement by and between Paul F. Walsh
and the Company (incorporated by reference to Exhibit 10.6
to the February 28 8-K)
    
    *10.12
    
    Amendment to Equity Award Agreements, dated as of March 9,
2007, by and between Paul F. Walsh and the Company
(incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K the Company filed with the Commission on
March 13, 2007)
    
    *10.13
    
    Release, dated January 3, 2007, by and between the Company
and Kathleen Flanagan
    
    Filed herewith10.14
    
    Amendment No. 2, dated as of January 31, 2007, to the
Credit Agreement, dated July 1, 2005, among the Company,
J.P. Morgan Chase Bank, N.A., Bank of America, N.A., Wells
Fargo Bank, National Association, and J.P. Morgan
Securities, Inc.
    
    Filed herewith31.1
    
    Section 302 Certification by Mr. Paul F. Walsh
    
    Filed herewith31.2
    
    Section 302 Certification by Mr. George W. Gresham
    
    Filed herewith32.1
    
    Section 906 Certification by Mr. Paul F. Walsh and Mr.
George W. Gresham
    
    Filed herewith
 
 *
    
    Incorporated by reference
 29




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##### Table of Contents



SIGNATURES
  eFunds Corporation
(Registrant)Date: May 10, 2007
    /s/ Paul F. WalshPaul F. WalshChief Executive Officer and Chairman
(Principal Executive Officer) Date: May 10, 2007
    /s/ George W. GreshamGeorge W. Gresham
Chief Financial Officer
(Principal Financial and Accounting Officer) 30




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##### Table of Contents



Index to Exhibits
 ExhibitNo.
    
    Description
    
    Page Number10.13
    
    Release, dated January 3, 2007, by and between
the Company and Kathleen Flanagan10.14
    
    Amendment No. 2, dated as of January 31, 2007, to
the Credit Agreement, dated July 1, 2005, among
the Company, J.P. Morgan Chase Bank, N.A., Bank
of America, N.A., Wells Fargo Bank, National
Association, and J.P. Morgan Securities, Inc.31.1
    
    Section 302 Certification by Mr. Paul F. Walsh31.2
    
    Section 302 Certification by Mr. George W. Gresham32.1
    
    Section 906 Certification by Mr. Paul F. Walsh
and Mr. George W. Gresham
 31